Copper Prices Soar to 10-Year High, Metal Heads toward Deficit in 2021

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By KERRY SMITH, EDITOR, ST. LOUIS CONSTRUCTION NEWS AND REVIEW MAGAZINE

Copper prices have climbed to their highest level in a decade.

According to global metals analyst StoneX, copper was already trading at a nearly eight-year high in January when prices surged again in mid-February. In mid-February, copper contracts topped $4.25 per pound, approaching an all-time high of $4.58 per pound that the metal reached in 2011.

Investors are predicting that the supply chain will continue to tighten for this metal as the global market gradually recovers in the pandemic aftermath.

“We forecast that copper demand will rise in 2021 by approximately 5 percent year over year,” said Natalie Scott-Gray, a senior metals analyst at StoneX. “Demand is projected to outstrip supply, which we expect to grow by 2.3 percent year over year.”

StoneX analysts aren’t alone in predicting the looming copper supply deficit worldwide. Predictions are than the global copper supply is moving from a surplus in 2020 to a deficit of as much as 200,000 tons this year.

In January, the Copper Monthly Metals Index increased for the fourth month in a row. Analysts point to China’s manufacturing halts and slowdowns during 2020 as a key factor in the supply chokehold. CitiBank analysts say they expect copper prices to continue increasing, both in the US metals market and abroad, as key industries such as construction gain momentum. They project the copper market to shift into a deficit during the second half of 2021 and forecast deficits in the metal during 2022 and 2023, too.

From January through November of last year, the U.S. sold more copper scrap to China than during the same period in 2019. The U.S. exported 102,145 metric tons of copper scrap to China last year, an increase of 20 percent over the same 11 months in 2019. Analysts say China is an important ingredient in the overall recipe for copper demand, as the country is a significant consumer of the metal. Commodity analysts at the Bank of America Merrill Lynch say demand from China was the main driver of copper prices in 2020, but that as consumption from Asia has slowed in recent months, the recovery has broadened.

Pyramid Electrical Contractors, Inc. President Bob Snell knows well the volatility of the metals market. Snell says the firm began seeing increases in the price of not only copper but PVC resins and steel, too, as far back as August 2020.

“In 2021, the price increases have definitely accelerated,” said Snell. “It does affect projects that we had under contract pre-COVID. Some of those projects got put on hold and are now coming back around and we’re needing to adjust the estimate to reflect the metals market volatility. The volatility must also be taken into consideration when estimating our current projects.

We receive weekly conduit and wire pricing updates from our vendors and are continuously adjusting our estimating software to reflect what is occurring. It has been difficult for anyone in the industry to determine what’s going to happen next, even in the near future.”

Murphy Company VP of Estimating Kevin Suiter agrees.

“We’ve received notice from several of our material suppliers that pricing is going up,” Suiter said. “As far as estimating is concerned, we are constantly updating our prices to make sure our estimates include the latest prices. We are also including verbiage in our scope letters to notify our clients that our pricing is only good for a limited time due to the volatility in the market.”

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Building Materials Supplier, AGC Economist Attest to COVID Lumber Price Spikes

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By KERRY SMITH, Editor, St. Louis Construction News and Review Magazine

A Metro East building materials supplier with 72 locations across four states says the latest analysis by the Associated General Contractors of America is accurate: Builders and consumers are hurting from un precedented increases in the cost of lumber.

Robert Plummer, chairman and CEO of R.P. Lumber Company, Inc., says record price increases of more than 200 percent in lumber and panel products are not only choking the supply chain but also affecting commercial and residential contractors as well as consumers.

The life-long industry veteran’s observations track with AGC Chief Economist Ken Simonson’s latest analysis – released Feb. 17 – that prices for materials and services used in construction and contractors’ bid prices have diverged sharply since April 2020. A government index measuring the selling price for materials and services used in nonresidential construction increased 2.5 percent from December to January and a whopping 10.7 percent since the extreme price increases.

“Current conditions are harming contractors on existing projects and making it difficult to bid new work at a profitable level,” Simonson said, noting that the PPI for new nonresidential construction is a measure of what contractors say they would charge to erect five types of nonresidential buildings. The PPI increased only .2 percent since April. “While contractors have kept bids nearly flat until now, project owners and budget officials should anticipate the prospect that contractors will have to pass along their higher costs in upcoming bids,” he added. “Since this government data was collected more than a month ago, numerous sources indicate price increases have continued or even accelerated since then.”

Plummer attests that this is indeed the scenario. In addition to its 44-year history of serving as a building materials supplier, R.P. Lumber operates a truss plant and has retail home centers across Illinois, Missouri, Iowa and Wyoming.

“In all these years, I’ve never seen anything like this,” said Plummer. “We buy and sell a tremendous amount of lumber, drywall and roofing product – thousands of semitrailers’ worth – every year. It’s shocking where the price of lumber has gone since the (COVID) pandemic began, particularly on lumber and panels products such as OSBs (oriented strand board), ZipWalls and plywood. One year ago, we were paying somewhere in the $300 range per thousand board feet for 7/16ths (7/16-inch by 4 feet by 8 feet). Today we’re paying slightly more than $900 for the identical material.”

Even precut lumber is not immune from mills’ drastic price increases since COVID hit. Plummer says a 2×4-foot precut that cost in the $3 range in February 2020 now costs in the $6.50 to $7 range.

No doubt supply chains were impacted by the West Coast wildfires of 2020 that consumed huge forests of cedar, spruce and fir, and tariffs for product entering the U.S. from Canada has also played a role, Plummer says. But beyond these conditions, the severity of material increases continue to stymie lumberyards and contractors while hitting owners and homeowners’ bottom lines.

“This week we’ve heard of another 20 percent price increase in drywall, the second such increase this year, and it will take effect in March/April,” said Plummer. “In addition to lumber price increases, we’ve experienced three increases in the cost of metals, from steel studs to soffits, metal panels and I-beams. And we’re anticipating a second increase this year on wiring and on roofing materials. Builders will forward these increases through the pipeline. They may be protected on one job if they have locked-in pricing, but they may feel it on the next job.”

The entire industry is buying more building materials from Europe, according to Plummer. “Euro-Premium, a spruce product, is shipped into the U.S. more cheaply than we can many times buy a comparable product domestically right now,” he said. “That’s a reflection of how volatile the domestic supply chain is right now.”

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Transforming the Construction Industry in the Coming Decade: An Opportunity for St. Louis IT Innovation

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By LEE METCALF

Lee Metcalfe

For the past three years, investments in construction industry startups have skyrocketed. These startups are looking to improve the industry’s communication, payment processes, workforce development and management processes while promoting access to real-time information across the construction value chain. Many of these improvements are driven by significant IT hardware enhancements; building, tailoring and deploying software; data analytics tools and the ability to leverage artificial intelligence.

A popular technology-focused publication, TechCrunch, recently published an article with the headline, “Construction Tech Startups Are Poised to Shake Up a $1.3 Trillion Dollar Industry.” The article asserts that “the lack of tech sophistication on construction sites materially contributes to job delays, missed budgets and increased job site safety risk.” A huge industry coupled with enormous, unrealized efficiency gains has fueled this recent explosion of startups and the money to back them.

In coming St. Louis CNR editions, I will delve deeper into the nature of the IT innovations coming to the construction industry: the tools, techniques and tactics such as agile software development, digital product thinking and data analytics use cases.

But let me raise with you now a strategic, almost tectonic shift in St. Louis that is poised to support the construction industry like never before. National IT and innovation trends – coupled with the recent movement by leaders in the St. Louis community – will improve coordination and focus resources on key economic and industry drivers for our region.

One key to this momentum is leveraging our own innovation community even more effectively. Just see page 67 of the recently released STL 2030 Jobs Plan: Driving a Decade of Inclusive Growth (https://www.greaterstlinc.com/jobsplan/).This effort is bringing together an alliance of CIOs to drive workforce development and take advantage of other opportunities that can be leveraged for individual companies as well as the St. Louis IT community as a whole. 

St. Louis is already a technology hub. But if we can operationalize this new level of collaboration and coordination, St. Louis will not only be a technology hub. It will be the technology hub in the Midwest, if not nationally. 

Daugherty Business Solutions is in the middle of this movement. We are proud to be a St. Louis-based company and applaud the construction industry in this region for its positive impact on the community. I encourage you to examine this new plan and renew your engagement with the leaders in our innovation community including Cortex, T-Rex and The Yield Lab. 

With all the challenges of the last year, 2021 offers huge opportunity. Let’s make the most of it.

Lee J. Metcalf is vice president of Daugherty Business Solutions and a retired U.S. Navy Rear Admiral. He can be reached at lee.metcalf@daugherty.com or (314) 409-4392.

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Top 10 Major Marketing Mistakes That Cost You Money

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By STEPHANIE WOODCOCK

I recently purchased a Peloton bike.  I was doubtful at first. Will this become an expensive clothes hanger? Will I feel like going to my basement to literally spin my wheels?

Stephanie Woodcock

After setting up my subscription service with customer care, they said, “Welcome to the Peloton family.” Oh wow. We’re family now? Okay? I didn’t quite get it.

Then I took a ride. The virtual live class takes over the screen and you become part of this enthusiastic community. You’re swept away by the vibrance of this brightly dressed and animated instructor telling you that you are the best. You are a warrior. Royalty. And how great you will feel after this climb interval. As a first-time skeptic, it was exhilarating. 

The bike itself didn’t motivate me, however pretty it looks in my laundry room. But the live classes with upbeat music did. The unique, on-demand classes and celebrity-like instructors made all the difference in my desire to use the bike.

In many ways, our marketing is like this bike. If it stays dormant and unused, it’s just an expensive piece of equipment that cost you a lot of money with little to no results. 

We’ve got to spin it to win it. 

Are you winning in your marketing plan, or are you spinning your wheels? 

Following are my top 10 major marketing mistakes that cost you money:

#1 Your website is static, out-of-date, not mobile friendly or too detailed with industry terms.

User experience matters. In this virtual environment, your website is a good investment. Since 2011, smartphone usage has increased from 35 percent to more than 80 percent. People buy, look up contact information, products and services on their smartphones. Gain momentum by capitalizing on this here-to-stay trend. Think of your site as a catalog or phone book in the palm of your client’s hand. 

#2 Your marketing content is not visually appealing.

The human brain processes images 60,000 times faster than plain text. About 90 percent of all information transmitted into and through the brain is visual. Too many people think they can do their own marketing content, yet they fail. Do not make your human resources department tackle marketing or attempt to do graphic design. Would you let a random person cut your hair? No. Image matters. Graphic design is a science as well as an art. Best to leave it to the experts. 

#3 You neglect your company’s online presence.

Like it or not, social media is here to stay. You need to be connecting with your audience, customer base, influencers, employees and peripheral base. LinkedIn is a good place to start.  This is the place to share, network, see and be seen. If you don’t even go to the party, you’ll never be seen. And your website will remain in static Internet purgatory. 

#4 You’re not clearly stating what makes your company different.

Messaging is even more important now in our virtual age. Using industry jargon or feel-good statements does no one any favors, and we all come to a screeching halt. Try not to be too technical or vague in describing what makes you different. 

#5 You have no story that connects with the audience.

Draw in your client with a question that opens a story loop in the mind. For A/E/C companies, this is usually a problem that you can help solve. Instead of telling people what they need, open a story loop and compel them to want answers.

#6 You are not properly executing public relations campaigns.

This is KEY for our A/E/C industry. Promoting your company’s achievements through consistent PR campaigns helps further your brand. Highlight project completions, newsworthy events, award wins and nominations, industry news and employee promotions.

#7 You are not maximizing association involvement.

Even in this virtual age, membership involvement is key. Host a webinar. Sponsor digital events, websites and events, when they come back. If you are going to sponsor a big association event, have enough of a presence with people and support material.

#8 You’re building a Cadillac website but have no one to drive it. 

Companies too often make a sizable investment in a new website but have no marketing plan so that it gets noticed. “If you build it, they will come” does not apply in this case. Increase engagement and drive traffic to the site with social media, electronic marketing, SEO and SEM.

#9 You are focusing solely on customer acquisition.

Success rates of selling to a new customer fall somewhere between 5 percent to 20 percent while the success rate for retaining existing customers is 60 percent to 70 percent. Spending the majority of your budget on customer acquisition versus customer retention is yet another costly mistake many businesses make.

#10 Your marketing does not connect to a real sales plan.

The two go hand in hand. A marketing plan without sales engagement is like a bike without wheels. You may have a great seat and all the right tools for the ride, but you won’t go anywhere. Marketing should warm up cold leads and gather new ones.

Just like with any workout, consistency, planning and execution is key. 2021 is the time to get back in the saddle. These are just the basics. We have to plan the ride before we start it. And in the words of Peloton instructor Denis Morton, “Start Now. If you wait until the time’s right, you’ll wait forever.”

Stephanie Woodcock is president of Seal the Deal Too, a St. Louis-based marketing, creative & communications firm. She can be reached at stephanie@sealthedealtoo.com.

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COVID-19 Health Crisis Increases Importance of Boilerplate Lease Provisions

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By ANDREW J. WILLIAMS

Andrew Williams

While the COVID-19 pandemic has obviously resulted in far-reaching and fundamental impacts to the commercial real estate market, one phenomenon I have noticed in my leasing practice is the increased interest and focus my clients have on lease provisions that they previously thought of as “boilerplate.” This is understandable, since the pressures of the pandemic have stress-tested the enforceability of leases in several unique ways. Below are a few examples of lease provisions that have taken on new significance for my clients, both with respect to analyzing existing leases and negotiating new ones.

Force Majeure/Frustration of Purpose

Much has been written about the applicability and enforceability of force majeure provisions as they relate to COVID-19 lockdowns and the disruptions of the pandemic. Once a provision located near the end of most lease forms that many landlords and tenants glossed over during their review, the question of whether or not it applies in a given lease dispute is now of great importance. Most commercial leases contain the caveat that force majeure arguments will not excuse the failure to pay rent. To counteract this limitation, some of the new leases I have negotiated over the past several months include specific provisions permitting the partial abatement or deferral of rent in case of a new round of COVID-19 lockdowns. This concept is attractive to tenants for obvious reasons. However, some landlords see it as an opportunity to avoid the costly process of dealing with tenant requests for relief on a case-by-case basis, usually requiring attorney-prepared amendments or addenda to existing leases. 

Assignment/Subletting

No tenant enters into a lease with the intention of needing to assign or sublease its space before the end of the lease term, but the new realities of the COVID-19 pandemic have greatly increased the scrutiny that these provisions receive. Many offices and businesses remain closed or are operating at reduced capacity, so the option of subletting to a new tenant to reduce or eliminate rent expenses is attractive to many. However, before hitting the market to look for a subtenant or engaging a broker to do the same, it is important to dust off this provision in the existing lease to understand whether subletting requires prior written consent from the landlord, which it often does. Some leases even permit a landlord to terminate the lease in response to a request by the tenant to assign or sublet space, which may be a shock to tenants simply exploring their options. It is also common for leases to include a review fee or expense-covering mechanism for approval requests to landlords. 

Subordination and Attornment

It is difficult to think of a standard lease provision more obscure and filled with “legalese” than provisions related to subordination and attornment, but overlooking these provisions can have very significant impacts in the event of a default or foreclosure under a landlord’s mortgage or deed of trust. With the COVID-19 pandemic straining landlords and causing an increase in loan defaults, these provisions are more important than ever. Many leases contain automatic subordination provisions, meaning that the lease is automatically made subordinate to mortgages and deeds of trust in favor of the landlord’s lender. If the landlord subsequently defaults on its loan and the lender forecloses, the lender can sweep away any existing tenant lease that has been subordinated in this way. This may be disastrous to tenants, especially if they have invested significant dollars building out their spaces or if replacement space is not easily found. As protection, some leases provide that subordination of the lease is conditioned upon the execution of a subordination, non-disturbance and attornment agreement (often referred to as an SNDA). An SNDA typically confirms the rights of the lender to foreclose and receive rents, while also providing that the tenant will not be disturbed from possession of its space if the tenant is not in default under the lease. For tenants dealing with foreclosure resulting from a landlord’s loan default, a signed SNDA can be the difference between business as usual and lease termination.

While we all hope the end of the pandemic is in sight, attention to detail in drafting and negotiating lease terms to best protect your interests during unexpected times remains essential.

Andrew J. Williams is an attorney at Carmody MacDonald in St. Louis and focuses his practice in the areas of real estate, corporate law and mergers and acquisitions. He can be reached at ajw@carmodymacdonald.com or (314)854-8671.

This column is for informational purposes only. Nothing herein should be considered legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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A View From the Top

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By: Michael Chollet, Publisher – St. Louis CNR Magazine

 

Mike Chollet

A few weeks ago, my son and I set out on our annual trout fishing trip to the White River in Arkansas. The Fall weather and Ozark mountain scenery were beautiful and the fish were exceptionally cooperative. We’ve been making the trip for several years now and I always look forward to a stretch of river where there are a number of impressive homes – my favorite sits at the tip-top of the tallest hill in sight, 300 or more feet above the river. The house is easy to spot because of its distinctive red, metal roof. Over the years, it has become a fishing reference point that we nicknamed the Red Roof Inn. I’ve often wondered about how the world looks from way up there.

This year, on our first day out, my son laid his rod aside after a few hours of fishing and pulled a surprise from his knapsack – a small drone with high-def video capability which he launched from the front transom of the boat. He flew it low over the river a few hundred yards and then it rose and rose until it was flying a few hundred feet above the “Red Roof Inn.”  All the while he was controlling it with his phone and viewing the video footage as it recorded. The structure we could see from below was the largest of a few others surrounding a large concrete courtyard. The drone footage showed that this hill was indeed the highest for miles around and the view from the top, as I had guessed, was truly spectacular.

Seeing that little gizmo in action, I felt lucky to be living in a time of such magical technology. Winston Churchill’s life spanned the invention of the airplane and the moon landing, but folks of my generation have witnessed technological advancements that far surpass those experienced by old Sir Winston.

We’ve had the privilege of seeing impressive progress in a lot of other areas as well. As the eldest son of no-nonsense woman who ran her own company for as long as I can remember, it’s meaningful for me to see women gain an increased presence in leadership roles in a range of industries. They are outnumbering men in graduating into professional careers such as law and medicine and the number of women graduating from business schools is nearing 50 percent of all enrollees. Inroads have also been made in the traditionally male-dominated construction industry.

Those inroads and the remarkable people who are forging them were the inspiration for our 2020 Women in Construction Awards which are featured in this issue. An all-star selection committee made up of eight industry insiders took on the daunting task of choosing our winners from among the 60 nominations we received, and we are extremely grateful for their time and effort.

Reading through the submissions, it was clear that the nominees share a common characteristic of tenacity which is a requisite tool for a woman attempting to open doors in the construction industry. The high-achieving women highlighted in this issue scratched out their own futures through advanced education, serious mentorships, challenging work experience and careful cultivation of industry relationships. We salute our 2020 Women in Construction winners and applaud all the nominees on their success. Your contributions have made the industry and the region better for all who aspire to share your view from the top.

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AGCMO/TRC Partnership Generates 2nd Class of Graduates

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Early in 2020, AGCMO entered into a partnership with Three Rivers College (TRC) in Poplar Bluff to offer a 6-week certification program designed to propel its graduates into Heavy/Highway construction industry. The first class, taught out of the TRC facility in Poplar Bluff, was dramatically impacted by the onset of the Coronavirus pandemic, forcing both a delay in classes and a substantial reduction in class size. Ultimately, in June, the programs first six students received their Heavy/Highway Construction Program certificate.

In October, the second class of students began their training at TRC’s Kennett, MO facility and just before Thanksgiving, nine individuals received their certificate.

Certified and ready for work in the Heavy/Highway Construction Industry

There are currently a number of job opportunities in the southeast Missouri area for individuals qualified to enter the heavy/highway construction industry. MoDOT recently awarded AGCMO member, Robertson Contractors, Inc., a contract to rebuild 20 bridges in the region – and Robertson is quickly putting some of these graduates to work. MoDOT will continue to work on Highway 67 South and other interstates in the region over the next few years, ensuring continued prospects for work into the future.

About the Program at TRC

Students participating in the TRC program pay nothing to attend as the cost is covered by AGCMO’s Education Foundation and Three Rivers College. Maximum class size is 15 people, ensuring personal attention and opportunity for hands-on training using tools of the trade.

The TRC program provides great opportunities to individuals from southeast Missouri to work close to home and provides the opportunity for good paying jobs to individuals from some of the most depressed counties of Missouri.

The third class of individuals seeking their Heavy/Highway Construction Certification will begin early in 2021.

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Altering Your Sales Approach in This Climate

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By TOM WOODCOCK

Tom Woodcock

Sales trainers and consultants around the country are trying to pull rabbits out of their hats. How do you teach traditional sales techniques to contractors in a non-traditional business environment?

Answering that question is a daunting task. I’ll take a stab at it. As I watch and experience what is taking place in this sales climate due to the virus issue, election season and mercurial economic conditions, I’ve noticed a couple trends.

Trend #1: Zoom meetings are leveling the playing field. There are few ways to gain competitive separation when people are meeting from their home offices and kitchen tables. Plus, video fatigue is very real and growing. To combat this, it is critically important to be prepared, upbeat and interesting. If you just go through the motions when you jump on a video sales call, you blend in with the digital white noise.

Have some humor ready, look fantastic, mind your background and for goodness sake, make eye contact. Keep your traditional sales principles in place and achieve some level of commitment by the call’s end. Anything you would do in a physical, face-to-face meeting, do the same in a video call…you can even buy lunch! Have it delivered if your customer is willing and eat together online. You need to be creative to catch attention.

Trend #2: Virtual meetings are losing a level of professionalism. The more relaxed environment of a home office can breed a false sense of security. What happens around you on a call can distract your client. Drop the ocean background video. That’s not standing out. That’s unprofessional. You should be the interest factor, above all else. People are still buying from you, and they have an expectation that you function with the same level of professionalism as you did prior to this season of virtual interaction.

Trend #3: Confrontational topics abound. Stay away from them. Election results, religious points and perspectives on virus numbers can alienate your client. Even if your client or prospect brings up these topics, do your best to avoid the trap. I’m seeing too many salespeople make political statements and judgments that can erect a wall between them and their customers. I respect your opinion, but I really don’t need to hear it during a business setting. Many digital platforms are diving very negatively; selling with the same demeanor can kill your transactions.

Here’s a key to achieving sales success in this climate: Be strong in the vehicles and channels you have available, but always be looking to get as close to normal as possible. Determine what is an acceptable format for you with regard to meeting with customers face-to-face, attending association meetings and networking. After you have done so, look for opportunities that fit into that format. Find clients who are willing to meet face-to-face. It may take more contacts than usual to develop a full roster of meetings, but if it’s important to you, then make the calls.

I’m seeing too many people giving up on sales efforts and focusing solely on their marketing. Though I strongly believe in aggressive marketing programs, you can’t quit on your sales efforts. I’m not here to set your personal standards; I’m only relaying what is working. Individuals who are still getting out and meeting are seeing results. Whether you agree or not with that fashion of sales work in this era, it’s just a fact.

I also understand that different markets have differing restrictions. Staying within those guidelines and effectively meeting with clients is feasible. Unfortunately, this is the world we currently live in – yet commerce is moving forward. Construction predictions are all over the board. That said, the more sales activity you can enact, the greater chance you can secure projects regardless of the economic or political climate.

Good sales work endures. Relationships established prior to these events will cut through the uncertainty. I’ve been selling and teaching people to sell for decades. The one constant is that those who look for every angle to get in front of customers end up being the top performers. There are currently plenty of reasons to explain poor sales performance; just don’t let them become excuses. Digging in and fighting through difficult circumstances is what the champions do. There is business opportunity out there if you look hard and use a disciplined approach. It also doesn’t hurt to ask for a different set of eyes on your sales direction and take some constructive criticism from that individual.

This is a time to roll up your sales sleeves and find answers. Those who overcome can still experience success and growth. The companies that settle for down years will have exactly that. Whether you agree or disagree with the methodology I’ve stated is immaterial. The facts are apparent. You can achieve sales results in a pandemic, during an election year and in the midst of an economic uncertain business climate. Just do what you know you have to do to achieve it.

Tom Woodcock, president of seal the deal, is a speaker and trainer for the construction industry nationwide. He can be reached via his website,  www.tomwoodcocksealthedeal.com, or at 314.775.9217.

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Financing Issues Surrounding Modular Construction

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By ELIZABETH A. BARRETT

Elizabeth Barrett

Modular construction is on the rise in the commercial construction industry, including the new AC Marriott NoMad New York Hotel in New York City, the world’s tallest modular hotel originally scheduled to be stacked late fall 2020.

Modular construction is touted as being faster, better and cheaper than traditional construction; however, many traditional commercial lenders are hesitant to toss their hat in the ring and lend money to such projects due to the collateral timing issues involved with such financing. Understanding the basic distinctions between the applicability of governing law is crucial to structuring the modular build contract and avoiding potential pitfalls. 

Background

Modular construction is an alternative construction method in which 60 percent to 90 percent of a building – usually complete with flooring, ceilings, lighting, plumbing and appliances – is prefabricated offsite in individual modules, under safer controlled plant conditions, using the same building materials and designed to the same building codes and standards as normal construction, yet in about half the time with less waste and without the hindrance of weather-related delays. Simultaneously, excavation and foundation work can be completed at the jobsite, saving time and speeding up the total length of construction. Once complete, the modules are transported to the job site and installed like perfectly fabricated building blocks constructed to seamlessly fit together. When implemented effectively, modular construction results in an efficient high-quality product with greater quality control in about half the time, with more predictable costs and with less waste than traditional construction.

The Financing Hurdle of Modular Building

Despite all its positives, there are still many challenges surrounding modular construction, especially when it comes to searching for financing from traditional commercial lenders. The largest financing hurdle of modular construction is the lack of security for the lender. Because the modules are constructed offsite, some courts have held that the prefabricated modules are considered the personal property of the modular builders as building materials, and the modules do not become real property of the modular builder until they are delivered to the jobsite. Accordingly, when financing modular builds, many lenders will only release loan proceeds after the modules are delivered and installed on the real property to ensure the disbursement is secured. This causes issues for the modular builders, as they need the loan proceeds disbursed up front to construct the modules offsite.

A Potential Legal Fix

A solution may be found in the courts’ treatment of mobile homes, modular homes and prefabricated buildings. Some courts have treated mobile homes, modular homes and prefabricated buildings as “goods” under the UCC. The UCC defines “goods” as “all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale…” If the modules are considered goods, fixtures or commingled goods rather than building materials, this offers lenders the possibility of taking a security interest in the modules as “goods that are fixtures or …goods that become fixtures” prior to the modules being incorporated as part of the real estate. This would allow lenders to disburse loan proceeds to the modular builders to construct the modules offsite, while providing the lenders with their desired security. Win-win, right?

Pros and Cons of Applying UCC to Modular Builders

As stated, from a lender’s perspective, a shift to the UCC view would be beneficial and extend their security interest into the fabrication stage when the modules are offsite. However, this may be easier said than done.  Modular construction is challenging in that it is a hybrid that combines both goods and services; therefore, labeling modules as “goods” may not be that simple. Additionally, from a modular builder’s perspective, labeling modules as “goods” may not be as beneficial or desired. Under the UCC, a seller’s security interests in goods are extinguished upon sale to a buyer in the ordinary course of business, even if the security interests are perfected and the buyer knows of its existence. Thus, if modular construction is governed under the UCC, a modular builder (as a seller of goods) could be stripped of any remaining security interests it may have in the modules after a project owner (as a buyer of goods) has paid the general contractor and incorporated the modules into the finished building. This may cause more hesitation on behalf of the modular builders when considering entering into a modular build contract governed by the UCC. 

The Future of Modular Build Financing

Arguably, if courts would shift their interpretation of modular construction to be within the realm of the UCC as “goods,” it would allow lenders to take a security interest in the modules prior to delivery making it more comfortable for traditional lenders to offer financing to modular construction projects. The courts’ prior treatment of mobile homes, modular homes and prefabricated buildings as “goods” under the UCC opens the door for this possible future shift. However, there is no case law applying this interpretation to larger-scale commercial construction. Until then, careful construction of modular build contracts is required to clarify the parties’ mutual understanding of whether the UCC applies and how the various security interests run with the modules. As modular building becomes more prevalent, we can likely expect to see the nuances of whether the modules are defined as building materials or goods and the applicability of the UCC worked out within the legal system to, hopefully, make modular building more palatable to traditional lenders.

Only time will tell.

Elizabeth Barrett is an attorney at Carmody MacDonald in St. Louis and focuses her practice in the areas of banking, real estate, corporate and business law. She has represented financial institutions and other lenders in complex commercial loans and secured transactions, and other clients in general real estate acquisition and development matters.

This column is for informational purposes only. Nothing herein should be considered legal advice or as creating an attorney-client relationship. The choice of a lawyer is an important decision and should not be based solely on advertisements.

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The Coming Decade: A Revolution in Technology, Education and Impact of Women

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By Lee Metcalf

Lee Metcalfe

The 2020s will see further transformation of business and society around the world because of technology. This means unheard of levels of productivity across every discipline of the construction industry – actually, across every Industry.

At the core of this movement is information technology and the ability to access and harness huge volumes of data, the ability to put the insights from this data at the fingertips of every worker and the ability to create software, programs and visualizations that increase the usefulness and relevance of that information to businesses and to everyday lives.

But this engine of productivity, like any engine, needs fuel. In this instance, that fuel is savvy, creative, motivated people with the right skills who understand how to isolate the business requirement and focus the myriad of IT tools and techniques to best effect. And we will need a lot of them, which means that the 2020s will bring a revolution in education –

one that will inspire more women and young people of color to choose careers in IT.

According to Sarah K. White, senior writer for CIO Online magazine (January 2020), women comprise 47 percent of all employed adults in the U.S., but as of 2015, they hold only 25 percent of computing roles, according to data from the National Center for Women & Information Technology. Of the 25 percent of women working in tech, black and Hispanic women accounted for 3 percent and 1 percent, respectively.

What is happening to reverse this trend? Alignment and collaboration between the educators and employers. Clearly many companies are involved in supporting young people and STEM education on some level. But this is the tip of the iceberg.

Employers are opening their doors to young people earlier and more powerfully than ever before. Employers, school districts and nonprofits like the Girl Scouts will increasingly be working together on levels unheard of in the past. Reaching out to young women to consider careers in industries, such as construction and IT, where they have been underrepresented is a key to our future. 

Jennings School District in St. Louis and Superintendent Art McCoy exemplify this. McCoy starts children thinking about the possibilities and careers in the 3rd grade. Each school year, they are increasingly exposed to employers and a wide range of types of work. Even more importantly, Jennings students focus during their high school years on completing key certificates for their chosen industries of interest in health care, construction, manufacturing, IT or the arts. This is the age of STEAM – science, technology, engineering, art and math – and creative ways to inspire involvement.

McCoy has partnered with area businesses to not only fund creative learning experiences in the school but integrate on site learning experiences (the next generation of internships) into the curriculum. At Jennings, students engage in internships with and site visits to companies and institutions such as World Wide Technology, St. Louis College of Pharmacy and Clayco. McCoy has taken the district’s construction career development initiative and put it on steroids. 

From graduates leveraging their internship experiences into job opportunities to graduates going on to higher learning, Jennings School District has them. Malik Sediqzad, a graduate who is becoming an architect with a full ride to Harvard, is one of them. The district is claiming success across the board. Women in technology are and will continue to be a big part of the STEAM that is fueling the productivity surge of the coming decade.  

Lee J. Metcalf is vice president of community engagement at Daugherty Business Solutions and a retired Navy Reserve Rear Admiral.  https://www.daugherty.com/

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